role of resolution professional in cirp 2017/presentation/role of... · encumbered property (ep) of...

Role of Resolution Professional in CIRP

Jagdish Ahuja,

B.Com, LL.B, FCS, ACMA

19th July 2017

J.R. Ahuja & Co., Company Secretaries, P&C 2

Focus is to improve India’s Ease of doing business ranking to

achieve the distinction of coming in first 50 countries.

July 19, 2017


The bankruptcy law reform was identified as a key priority for improving the ease of doing

business in India (Budget 2015-16)

July 19, 2017


India ranked 136 out of 189 countries in the World Bank’s Doing Business report index

July 19, 2017


The BLR Committee Report too highlighted that as per the World Bank Report, the average time to resolve insolvency in 2014 was four years in India, compared to 0.8 years in Singapore and one

year in London.

July 19, 2017


"...to consolidate and amend the laws relating to reorganization and insolvency resolution of

corporate persons, partnership firms and individuals in a time bound manner for

maximization of the value of assets of such persons, to promote entrepreneurship,

availability of credit and balance the interests of all the stakeholders including alteration in

the order of priority of payment of Government dues and to establish an Insolvency and

Bankruptcy Board of India, and for matters connected therewith or incidental thereto."

The Preamble of the Code

July 19, 2017

Applicability


The Code extends to the whole of India except Part III which shall not extend to the state of J&K

July 19, 2017

The Insolvency and Bankruptcy Code, 2016 is divided into

J.R. Ahuja & Co., Company Secretaries, P&C8

Five Parts

Eleven

Schedules

255 Sections

July 19, 2017

The Framework of the Code


Part III (Insolvency

Resolution &

Bankruptcy for

individuals &

Partnership firms

Part V

(Miscellaneous)

Part-1 (Preliminary)

Part II (Insolvency

Resolution &

Liquidation for

corporate Persons

Part IV(Regulation of

insolvency

professionals, agencies

& Information Utilities

Eleven Schedules

(Amendments to

various other laws)

July 19, 2017

10

Preliminary

CIRP)

Liquidation Process

FastTrack Insolvency Resolution Process

Voluntary Liquidation of Corporate Persons

Part II : Insolvency Resolution & Liquidation for

corporate persons (Sec 24 to 62)

Adjudicating Authorities for Corporate Persons

Chapter-1

Chapter-2

Chapter-3

Chapter-7 Offences & Penalties

Chapter-5

Chapter-6

Chapter-4

July 19, 2017J.R. Ahuja & Co., Company Secretaries, P&C


Steps involved in Corporate

Insolvency Resolution Process

July 19, 2017


FC/OC/CD initiate

CIRP vide application

to NCLT under Sec

7,8 or 10

FC upon default or

OC post 10 days of

delivering Demand

Notice or CD on its

own to initiate CIRP

NCLT to admit or

reject application

within 14 days of

receipt (allows 7 days

time to rectify, defect)

NCLT to declare

Moratorium, appoint

IRP for up to 30 days

and cause PA

NCLT to intimate

admission(A) or

rejection(R) within 7

days of A/R

Insolvency

Commencement date

starts from the date of

admission

The Entire CIRP

process to be

completed within 180

days

It can be extended by

NCLT for not more

than 90 days –only one

time

IRP to constitute CoC

comprising all FC

July 19, 2017


Mgt of affairs of CD as

going concern, powers

of BoD/partners of

CD stand suspended &

exercised by IRP

CoC within 7 days of

its constitution either

to resolve to appoint

IRP as RP or replace

IRP with another RP

All decisions of CoC is

backed by vote of not

< 75% of voting share

of FC

Res Applicant prepares

Res Plan based on IM

Preparation of IM by

RP for formulation of

Res Plan by Resolution

Applicant

Submission of Res Plan

by Res Applicant to be

examined by RP

Such plan to be

approved by 75% of

voting share FC

RP to submit approved

plan to NCLT which

shall

approve/reject/order

for liquidation

Approved plan is

binding on CD,

employees, members,

creditors, guarantors,

and others in Res Plan

Moratorium ends on

the date of approval

Aggrieved party can

appeal to NCLAT on

rejection.

Continued……..

July 19, 2017


Sec 61 : Notwithstanding anything contrary contained in CA

2013, any person aggrieved by order of AA ma prefer appeal to

NCLAT

Sec 62: Any person aggrieved by the order of NCLAT may prefer

appeal to SC on a question of law arising out of such order

within 45 days of receipt of the order

SC, if satisfied that there was sufficient cause, allow further

period not exceeding 15 days

Such Appeal to be filed within 30 days. NCLAT, if satisfied that

there was sufficient cause, allow further period not exceeding

15 days

Appeals & Appellate Authorities

July 19, 2017


Appointment of Resolution

Professional (Section 22)

July 19, 2017


First Meeting of CoC

held within 7 days of

the constitution

In this meeting, the

CoC with not < 75%

voting of Fin Crs.,

Resolves to appoint

IRP as RP or replace

him with new RP

Where it is resolved to

replace IRP, CoC to

file application with

AA for appointing

proposed RP

Where IRP is

appointed as RP, CoC

to inform IRP, CD and

the AA

The AA shall forward

the name of proposed

RP to the Board for

confirmation

The AA shall make

appointment post

confirmation from the

Board

If the Board does not

confirm within 10

days,

the AA by order to

direct IRP to continue

to function as RP till

Board confirms

July 19, 2017


Subject to Sec 27, RP shall conduct the entire CIRP & manage operations of CD during the CIRP period

In case of appointment of RP other than IRP, the IRP shall provide all information, docs and records of CD in his possession and knowledge to the RP

The RP shall exercise powers and perform duties as are vested on the IRP

Sec 23: RP to conduct CIRP

July 19, 2017


Meeting of Committee of Creditors

(Section 24)

July 19, 2017


Meeting of CoC can be physical or by electronicmeans

The RP shall give notice of each meeting toa) members of CoCb) members of suspended BoD or the partners of

corporate personsc) operational creditors or their representative, if

their dues is not < than10% of the debt

All meetings of CoC to be conducted by RP

Sec 24: Meeting of CoC

July 19, 2017


The directors/partners/one Rep of operationalCreditors can attend meeting but cannot vote

A creditor may appoint an IP other than RP torepresent such creditor in a meeting of CoC.

Provided their absence shall not invalidate meetingproceedings


Fees payable to such IP to be borne by concernedcreditor

July 19, 2017


Each Creditor to vote as per Voting share assigned tohim based on his financial debt

The meetings of CoC to be conducted in such manneras may be specified

The RP to determine the voting share to be assignedto each creditor in the manner specified by the Board


July 19, 2017


Duties of Resolution Professionals

(Section 25)

July 19, 2017


To preserve & protect assets of CD includingcontinued business operations of CD & for thatpurpose

Take immediate custody and control of all assets, business records of CD

Raise interim finance with approval of CoC

Maintain updated list of claims

Conduct and convene meetings of COC as and when required

Represent and act on behalf of the CD with third parties, exercise rights for the benefit of the CD in judicial, quasi-judicial or arbitration proceedings

July 19, 2017


Prepare Information Memorandum on the basis of which Resolution plan would be prepared

Invite prospective lenders, investors, and any other persons to put forward resolution plans

Present all resolution plans at the meetings of the committee of creditors

File application for avoidance of transactions in accordance with Chapter III, if any; and

such other actions as may be specified by the Board

July 19, 2017

Duty of IRP V RP – Raise interim Finance


IRP RP

Section 20 Section 25

Raise interim finance provided that nosecurity interest be created over anyencumbered property (EP) of the CDwithout the consent of the concernedcreditor whose debt is secured oversuch EP

Raise interim finance, subject toapproval of CoC U/S 28

Provided that no prior consent of CoCis required if value of the property isnot less than twice the amount of debt

July 19, 2017


Avoidance of transactions refers to certainundervalued transaction u/s 45

Sec 26: Application for avoidance of transactionsunder clause (j) of subsection (2) of Section 25 not toaffect CIRP proceedings

If the Liquidator/RP, upon examination oftransactions of the CD finds that certain transactionsduring the relevant period were undervalued, heshall make an application to AA to declare them voidand reverse the effect of such transactions

Transactions will be considered undervalued, ifa) CD makes a gift to a personb) CD enters into a transaction with a person which

involves transfer of asset at significantly lowervalue

July 19, 2017


For making application, the Liquidator/RP shalldemonstrate that

i) Such transactions were made with any personwithin the period of one year preceding theinsolvency commencement date

ii) Such transactions was made with a related partywithin the period of two years preceding theinsolvency commencement date

The AA may require an independent expert to assessevidence relating to value of such transactions

Sec 46: Relevant Period for avoidable transactions

July 19, 2017


Notwithstanding anything contained in any other law, for the time being in force, the RP shall during CIRP, not take any

of the following actions without prior approval of CoC

Sec 28: Approval of CoC for certain actions

July 19, 2017


Raise interim finance in excess of amt. decided byCoC

Create any security interest over CD assets

Change the capital structure of the CD

Record any change in ownership interest of CD


Give instruction to FI, maintaining A/cs of CD fordebit instructions on such A/cs in excess of amt.decided by CoC

Undertake any related party transactions

July 19, 2017


Delegate its authority to any other person

Dispose or permit disposal of shares of anyshareholder of the CD or their nominees to 3rd parties

Make any change in the mgt. of the CD or itssubsidiary


Amend constitutional documents of the CD

Transfer rights or financial/operational debts undermaterial contracts otherwise than in ordinary courseof business

Changes in appointment or terms of contract of suchpersonnel as specified by CoC

Make changes in appointment or terms of contract ofstatutory auditors, internal auditors of CD

July 19, 2017


No action as above to be approved unless approved byvote of 75% of the voting shares

Where any action is taken by RP without approval asabove, such action shall be void

The CoC may report such actions of the RP to the Boardfor taking necessary action

July 19, 2017


Information Memorandum Sec 29 read with (Regulation 36 of IBBI (Insolvency Resolution Process

for corporate Persons) Regulations, 2016

July 19, 2017


Sec 29(1) : Preparation of IM in such form and manner

containing info as specified by the Board for formulating Res

Plan

July 19, 2017


Sec 29(2) : The above info to be provided to Res applicant in physical

and Electronic Form

Provided he undertakes :

a) To comply with the provisions of the law relating to confidentiality

and insider trading

b) To protect any Intellectual Property of the CD

c) Not to share relevant info with 3rd

Parties unless above clauses are complied with.

July 19, 2017


(1) Subject to sub-regulation (4), the IRP/IP, as the case may be,shall submit an information memorandum in electronic form toeach member of the committee and any potential resolutionapplicant containing-

(a) at least the matters listed in paragraphs (a) to (i) of sub-regulation (2), before its first meeting; and

b) matters listed in paragraphs (j) to (l) of sub-regulation (2), within fourteen days of the first meeting.

Contents of Info Memorandum (Reg. 36)

July 19, 2017


(a) assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category;

(b) the latest annual financial statements;

(c) audited financial statements of the CD for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application;

(d) a list of creditors containing the names of creditors, theamounts claimed by them, the amount of their claimsadmitted and the security interest, if any, in respect of suchclaims;

Contents of Info Memorandum (Reg. 36 (2)

July 19, 2017


(e) particulars of a debt due from or to the CD with respect to related parties;

(f) details of guarantees that have been given in relation to the debts of the CD by other persons, specifying which of the guarantors is a related party;

(g) the names and addresses of the members or partnersholding at least one per cent stake in the CD along with thesize of stake;

(h) details of all material litigation and an ongoinginvestigation or proceeding initiated by Government andstatutory authorities;


July 19, 2017


(i) the number of workers and employees and liabilities of the corporate debtor towards them;

(j) the liquidation value;

(k) the liquidation value due to operational creditors; and

(l) other information, which the resolution professional deems relevant to the committee.


July 19, 2017


A member of the Committee may rquest the Res Professional for further info and he shall provide such info to all members within reasonable time if such info has a bearing on Res Plan


July 19, 2017


Sec 30 Resolution Plan

July 19, 2017


A Res Applicant to submit Res plan to the RP preparedon the basis of IM

The RP to examine each Res Plan & confirm that eachRes Plan

a) Provides for payment of IRP cost in priority torepayment of other debts

b) Provides for repayment of debts of OC as may bespecified by the Board, which shall not be < the amt.to be paid to OC in the event of liquidation of CD u/s53 (distribution of assets).

Sec 30 : Resolution Plan

Provides for management of affairs of CD afterapproval of Res Plan

Provide for Implementation & supervision of Res Plan

Does not contravene any of the provisions of the lawfor the time being in force & conforms to such otherrequirements as may be specified by the Board

July 19, 2017


The CoC to approve Res Plan by 75% vote of FC

The Res Applicant may attend meeting of CoC inwhich his Res plan is considered

Provided he shall not have any right to vote, unlesssuch Res Applicant is also a FC

The RP shall submit the Res Plan as approved by CoCto the AA

Sec 30 : Resolution Plan

If AA is satisfied that the res plan as approved by CoCmeets the requirements, it will by order, approve theplan which shall be binding on all concerned

If AA is not satisfied, it may by order reject the plan

Post approval order, the moratorium period shallcease and RP shall forward all records of CIRP toBoard

July 19, 2017


The IRP shall, within 7 days of his appointment appoint two

Registered Valuers to determine Liquidation Value of

CD as per Reg 35

Reg 27: Appointment of Registered Valuers

July 19, 2017


Provided that following persons shall not be appointed as Regd.

Valuers: a) a relative of the interim

resolution professional;b) a related party of the CD

c) An Auditor of CD in the 5 years preceding ins comm date; or

d) A partner or director of the IPE

Reg 27: Appointment of Registered Valuers

July 19, 2017


(1) In case of assignment/transfer of debt, both the parties shall provide

IRP/RP the terms of such assignment/transfer and identity

of the assignee/trasnferee

(2) The RP shall notify each participant and the AA of any resultant change

in CoC within 2 days of such change

Reg 28: Transfer of debt due to Creditors

July 19, 2017


Reg 29: Sale of Assets outside the ordinary course of Business

(1) The RP may sell unencumbered assets of CD as per Reg 29 if he opines that it is needed

for better realisation of value.

Provided that the book value of assets sold during CIRP period in aggregate does not exceed

10% of the total claims admitted by IRP.

2) The sale of assets to be with approval of CoC

3) A bonafide Purchaser will have free and marketable title notwithstanding any terms in

the primary docs

July 19, 2017


Reg 30: Assistance of local district administration

The IRP/RP may apply to AA for an order seeking assistance of local district administration, in

discharging his duties under the Code/Regulations

July 19, 2017


General Code of Conduct applicable to

IP First Schedule to IBBI

[IP] Regulations

July 19, 2017


Integrity and Objectivity, Independence and Impartiality, Professional Competence, Timeliness, Information Management,

Representation of Correct facts, Confidentiality, Integrity, Occupation,

Employability and restrictions,

Remuneration and cost, Gifts

July 19, 2017


Grey Areas

July 19, 2017


Absence of IU

Lack of consensus amongst Lenders

Expiration of tenure of IRP

Shortage of NCLT Benches

Shortage of Skilled Professionals/Capacity Building of IP

Non Co-operative Management

High Cost of Bankruptcy Res Process

Dilution of rights of Secured Creditors

Disadvantageous to Trade Creditors

Need for better monitoring of IP

Synchronisation of the current

restructuring scheme with the

code

Potential higher provisioning for banking sector

July 19, 2017


NPA Resolution

Time Bound Process of CIRP

Establishment of infrastructure at

NCLT

Cross border Insolvency

Conflicting views of NCLT & NCLAT

July 19, 2017


Case Laws

July 19, 2017

DISPUTE

Kirusa Software Pvt Ltd (OC) vs Mobilox Innovations Pvt Ltd. (CD)

the CD disputed the claim on grounds of violation of Non-DisclosureAgreement by OC.

NCLT upheld the dispute & dismissed the proceedings.

The OC appealed and NCLAT while admitting the appeal ruled that debtwas not connected to NDA and went on to explain the meaning of DISPUTE.

In its order, NCLAT said that a dispute would include any proceedingsalready initiated or pending or even those which are proposed to beinitiated before a consumer court, tribunal, labour court etc. Earlier,disputes considered were limited to arbitration proceedings or suits. Thiswide definition is a source of concern, say experts.

J.R. Ahuja & Co., Company Secretaries, P&C 54July 19, 2017

As per Sec 5(6) Dispute includes a suit orarbitration proceedings relating to

a) The existence of the amt of debt;

b) The quality of goods or service ; or

c) The breach of a representation or warranty


TIMELINESS

One of the important point in IBC Code is thetimeliness it prescribes –

14 days for admission/rejection of claim and 270days (with extension) for completion of theprocess

The NCLAT order in JK Jute Ltd case held that the14 days timelines for admitting/rejecting a claimwas a directive and courts do not necessarilyhave to adhere to the timeline though it held thatonce the case is admitted 270 days timeline ismandatory.


57

B.Com, FCS, ACMA, LL.B.

Total 25 years of industry experience in Secretarial,Commercial, Accounts & Finance

Proprietor of JR Ahuja & Co, Company Secretaries inMumbai since Jan 2012 (More than 5 years)

Guest Speakers at various forums of ICSI & ICAI (CMA)& visiting Faculty for ICSI-CCGRT/ICAI for Companylaw and Indirect tax subjects.

Contributed articles on Tax, Finance & Secretarialmatters in reputed Newspapers and also in souvenirsof ICSI/ICAI

Profile of Jagdish Ahuja

Contact: JR Ahuja & Co, Company Secretaries, UG329, Dreams Mall, Bhandup West, Mumbai 400078;email: [email protected]; Mobile: 9323144390,Landline: 8655044390


58

Company Law practitioner

GST Practitioner (Proposed)

Insolvency & Bankruptcy LawPractitioner (Proposed)

Trade Mark Advisory Work includingApplication filings, hearing andadvising esteemed clients.

Income Tax Practitioner

Our Activities

Legal including drafting and vetting ofcommercial agreements


Nice talking to you

You can mail me

[email protected]

or contact me

9323144390

59J.R. Ahuja & Co., Company Secretaries, P&C July 19, 2017

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